Capital Market: The Real Picture

May 6, 2009

CROSSHAIRS

A year ago, the booming Indian capital market was the cynosure of global investors’ attention. Now, a set of news reports on various aspects of the trading system present a dismal and contrary picture:

• The monopoly National Stock Exchange (NSE) suddenly shed 50 stocks from its derivatives list. The timing of this move only underlines the criticism that it had recklessly added many scrips to the list to enhance trading volumes and profits during the bull run. Meanwhile, the NSE continues to resist the demand to introduce physically settled derivatives and gets away with it because the Securities and Exchange Board of India (SEBI) seems disinclined to intervene.

• The Economic Times reports that 70% of demat accounts have remained idle in 2008-09. There were only 15.2 million demat accounts in the country (at the end of that period), including multiple accounts and only 30% of these are apparently active. SEBI’s own report on the Pyramid Saimira scam says that brokers have been opening hundreds of accounts in the name of gullible people to hide their trail while they manipulate stocks. As against this, the official investor population is 19 million-20 million. This itself is a paltry number, given that India has a population of 1.1 billion and growing, and the economy grew at 8% in the recent past. What then is the true investor population in India? Far from worrying about why Indians shun the capital market, the newspaper reports that depositories as well as depository participants have gone ahead and raised their fees and thus protect their profits. (Read our Investigation Section, pg24.)

• Meanwhile, the number of people getting away easily with market manipulation, mis-declaration of information and rule violation, after having come under SEBI’s scanner, has jumped to 540. They have all paid up money under the ‘consent and compounding’ rules and walked free without admitting or denying guilt. For the first time, SEBI has released information about the process followed by it for accepting applications under consent rules. While 540 applications were accepted and cleared, 264 applications were declined. Of these, 228 were declined because the settlement proposal was considered inadequate. SEBI collected just over Rs47 crore in settlement and another Rs14 crore through adjudication. This seems paltry when one considers the extraordinary profits that market operators rake in by manipulating stock prices.